camac report: csef report 21may2014

8/12/2019 CAMAC Report: CSEF Report 21May2014

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Corporations and MarketsAdvisory Committee

Crowd sourced equityfunding

Report

May 2014


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Corporations and Markets Advisory Committee 2014

ISBN 978-0-9871!9-7-

"#is $ork is %opyrit' Apart (rom any )se permitted )nder t#e Copyright Act 1968* no part may+e reprod)%ed +y any pro%ess $it#o)t attri+)tion'

Disclaimer."#is do%)ment s)mmarises in(ormation and makes &enera, statements a+o)t t#e ,a$'

o$ever* it #as not +een prepared (or t#e p)rpose o( providin& ,e&a, advi%e' In a,, %ases* yo)

s#o),d re,y on yo)r o$n ,e&a, advi%e to determine #o$ t#e ,a$ may app,y in parti%),ar

%ir%)mstan%es'

"#is do%)ment is avai,a+,e* e,e%troni%a,,y on,y* at.

www.camac.gov.au

CAMAC/s %onta%t detai,s are.

emai,. [email protected]

(a. 02 9911 29

p#one. 02 9911 290

mai,. Corporations and Markets Advisory Committee

35 Bo !967

Sydney NS 2001
http://www.camac.gov.au/mailto:[email protected]://www.camac.gov.au/mailto:[email protected]


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21 May 2014

Senator t#e on' Mat#ias Cormann

Minister (or inan%eA%tin& Assistant "reas)rer

ar,iament o)se

CANB::A AC" 2600

;ear Senator Cormann

I am p,eased to present CAMAC/s report on %ro$d so)r%ed e


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iv Crowd sourced equity funding

Contents

Contents

1 The CAMAC review................................................................................................

1'1 :e(eren%e to CAMAC''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

1'2 S%ope o( t#e revie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

1'! "#e revie$ pro%ess'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

1'4 Internationa, %ontet'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

1' CAMAC position''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

1'6 CAMAC'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

2 Looking ahead..........................................................................................................

2'1 Introd)%tion''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

2'2 In prin%ip,e* s#o),d CS +e (a%i,itated in A)stra,ia''''''''''''''''''''''''''''''''''''''''''''

2'! ;oes t#e eistin& ,a$ (a%i,itate CS'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

2'4 #at po,i%y option to (a%i,itate CS s#o),d +e adopted'''''''''''''''''''''''''''''''''''

2' #at iss)es arise in imp,ementin& t#e re%ommended po,i%y option'''''''''''''''''''

2'6 5vervie$ o( t#e proposed re&),atory str)%t)re'''''''''''''''''''''''''''''''''''''''''''''''''''''

2'7 )+,i% interest enterprises'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

3 The corporate form to facilitate CS!................................................................

!'1 5vervie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

!'2 Be%omin& an eempt p)+,i% %ompany''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

!'! Comp,ian%e eemptions''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

!'4 S#are#o,der rits'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

!' piration o( t#e eempt stat)s'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

" The crowdf#nding process$ iss#ers......................................................................

4'1 5vervie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

4'2 ermitted iss)ers'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

4'! ermitted se%)rities'''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

4'4 Ne$ e


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Crowd sourced equity funding v

Contents

% The crowdf#nding process$ intermediaries.........................................................

'1 5vervie$''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''''

A &ermitted t'pes of intermediar'........................................................................

'2 So,e-intermediary and on,ine-on,y re


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vi Crowd sourced equity funding

Contents

Appendi+ 1 ,nline f#ndraising............................................................................................

Appendi+ 2 A#stralia............................................................................................................

Appendi+ 3 -nited States and Canada................................................................................

Appendi+ " #rope...............................................................................................................

Appendi+ % ew /ealand......................................................................................................

Appendi+ * 0espondents......................................................................................................


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1 The CAMAC review

This chapter provides background information on the nature and scope of the CAMAC

review and the review process!

1.1 Reference to CAMAC

In Advancing Austra"ia as a #igita" $conomy% An &pdate to the 'ationa" #igita"

$conomy (trategy>)ne 201!* re(eren%e $as made to #o,din& an independent revie$ o(

t#e re&),ation o( %ro$d so)r%ed e


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2 Crowd sourced equity funding

The CAMAC review

s)%# as t#e anti-money ,a)nderin& and %o)nter-terrorism (inan%in& ,e&is,ation* as $e,, as

priva%y ,e&is,ation'

"#e re&),ation o( CS may invo,ve vario)s trans-)risdi%tiona, iss)es* in%,)din& a%%ess

+y A)stra,ian investors to e


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Crowd sourced equity funding 3

The CAMAC review

C#apter 2 sets o)t t#e CAMAC position on t#e +road po,i%y iss)es in t#is revie$* %entred

on $#et#er CS s#o),d +e (a%i,itated in A)stra,ia* and possi+,e met#ods o(

imp,ementation'

C#apters ! to 6 dea, $it# t#e spe%i(i% imp,ementation iss)es t#at $o),d arise i( CS is to+e (a%i,itated in A)stra,ia'

"#e imp,ementation proposa,s in t#is report are dere&),atory in t#at t#ey seek to over%ome

%)rrent ,e&a, impediments to t#e )se o( CS in A)stra,ia' o$ever* (or t#is (orm o(

%orporate ()ndraisin& to operate in t#e +est interests o( a,, invo,ved parties* a re&),atory

str)%t)re spe%i(i%a,,y desi&ned (or CS needs to +e deve,oped' "#e e,ements o( t#is

proposed str)%t)re are set o)t in t#is report'

Eario)s proposa,s in t#is report invo,ve monetary maim)ms or %aps' or instan%e*

CAMAC proposes ,imits on #o$ m)%# an iss)er may raise* or a %ro$d investor may

epend* t#ro) CS in any 12 mont# period' "#e spe%i(ied (i&)res #ave +een %#osen

(rom t#e perspe%tive o( CS +ein& prin%ipa,,y desi&ned (or* and to +e )ti,ised +y* t#einnovative start-)p and ot#er sma,,-s%a,e enterprise se%tor o( t#e A)stra,ian e%onomy'

o$ever* any monetary %ap %an +e ar+itrary in some respe%t* and t#ere is a,$ays room (or

dis%)ssion on $#ere %aps s#o),d +e set' A,so* %aps %o),d +e ad)sted in ,it o( eperien%e

$it# CS* i( introd)%ed'

1.& CAMAC

CAMAC $as esta+,is#ed in 1989 and is %)rrent,y %onstit)ted )nder art 9 o( t#e

Austra"ian (ecurities and )nvestments Commission Act *++1' Its ()n%tions in%,)de* on its

o$n initiative or $#en re


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The CAMAC review

>o#n ri%eCommissioner* A)stra,ian Se%)rities and Investments Commission

nominee o( t#e ASIC C#airman

Ian :amsayro(essor o( ?a$* Fniversity o( Me,+o)rne

Brian Sa,ter3enera, Co)nse,* AM* Sydney

3re& Ei%kery A5Spe%ia, Co)nse,* Norton :ose A)stra,ia* Bris+ane'

"#e e%)tive %omprises.

>o#n G,)vere%)tive ;ire%tor

Ein%ent >e$e,,;ep)ty ;ire%tor

"#a)mani arrino5((i%e Mana&er'


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2 'oo(ing ahead

This chapter discusses the key questions concerning crowd sourced equity funding in the

Austra"ian conte,t and out"ines the CAMAC proposa"s for its faci"itation!

2.1 "ntroduction

"#e eponentia, and %ontin)in& &ro$t# o( t#e internet* $it# its &,o+a, rea%#* provides ne$

opport)nities (or persons to seek ()nds (rom t#e %ro$d* $it# $e+sites* %#at rooms* +),,etin

+oards* +,o&s and ot#er so%ia, media +ein& avai,a+,e to %omm)ni%ate $it# internet )sers in

$ays previo)s,y )n(oreseen'

Cro$d so)r%ed e


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ot#er (orms o( eterna, (inan%e and t#e prod)%tive )se o( advi%e and ot#er (orms o(

mentorin& and assistan%e (rom entities kno$n as in%)+ators/ or a%%e,erators/'

Some ot#er $ort#$#i,e start-)ps do not make t#is transition to &ro$t#* despite t#e


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S)%# an o)t%ome* i( it +e%omes %ommonp,a%e* may not on,y #arm individ)a, investors +)t

a,so )ndermine t#e %on(iden%e o( %ro$d investors* %o,,e%tive,y* in t#is (orm o( investment'

it#o)t t#eir parti%ipation* CS %annot s)%%eed as a so)r%e o( %orporate ()ndin&'

2.1.The CAMAC reviewIn %onsiderin& t#e ro,e and possi+,e re&),ation o( CS in A)stra,ia $it#in t#is e%onomi%

%ontet* CAMAC #as %onsidered t#e (o,,o$in&


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In imp,ementin& t#is initiative* t#e Ne$ Hea,and 3overnment stated t#at ne$ (orms o(

intermediated ()ndraisin& s)%# as CS.

ena+,e ()nds (or sma,, +)sinesses and individ)a,s to +e raised in internet-+ased marketp,a%es* potentia,,y more e((i%ient,y t#an t#ro) traditiona, p)+,i% or private o((erin&s'

A,so.

na+,in& %ro$d-()ndin& $as #i,ited in t#e 3overnment/s B)siness 3ro$t#A&enda as an initiative to s)pport ear,y-sta&e and &ro$t# %ompanies to a%%ess t#erisk-%apita, t#ey need to &ro$ K ermittin& %ro$d-()ndin& p,at(orms $i,, open )psi&ni(i%ant ne$ opport)nities (or sma,, +)sinesses to raise &ro$t# %apita,'

art 6 o( t#e A%t and t#e asso%iated :e&),ations provide (or app,i%ations to +e made to t#e

inan%ia, Markets A)t#ority MA to +e ,i%ensed to provide a %ro$d ()ndin& servi%e/ (or

t#e p)rposes o( CS' or t#is p)rpose* t#e MA #as p)+,is#ed Crowd funding .art /1%

0our guide to app"ying for a market service "icence Apri, 2014 MA Cro$d ()ndin&

&)ide'

Iss)ers makin& CS o((ers t#ro) ,i%ensed CS intermediaries $i,, +e eempt (rom

t#e norma, re5BS A%t dea,s $it# CS o((ers to investors &enera,,y' It is intended to

a,,o$ a start-)p or ot#er %ompany to raise modest amo)nts o( e5BS A%t s#o),d provide start)ps and sma,, +)sinesses $it# t#e

means to raise re,ative,y modest amo)nts o( %apita,* (rom a +road %ross se%tion o(potentia, investors* t#ro) se%)rities o((erin&s t#at are eempt (rom re&istration)nder t#e Se%)rities A%t' "#ey a,so s#o),d permit sma,, investors to parti%ipate in a$ider ran&e o( se%)rities o((erin&s t#an may +e avai,a+,e %)rrent,y'

"#e SC p)+,is#ed proposed r),es in 5%to+er 201!* $it# re


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In t#e same vein* t#e SC #as %ommented t#at.

(or %ro$d()ndin& to #ave a positive impa%t on t#e sma,, +)siness ()ndin& pro+,em* itm)st $ork (or +ot# iss)ers and investors' In parti%),ar* it is vita,,y important t#atinvestors #ave %on(iden%e in t#e %ro$d()ndin& pro%ess - or t#ey $i,, stay a$ay'

A,so.

LAny pro+,ems t#at arise (rom t#e a%tions o( %ro$d()ndin& iss)ers or Lintermediaryporta,s %o),d &enera,,y a((e%t investor %on(iden%e in t#e %apita, markets and #ave anadverse e((e%t on %apita, (ormation'

Sett,ement o( t#e SC :),es epe%ted d)rin& 2014 is a prere


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or instan%e* t#e stated aim o( t#e $ntrepreneurship *+*+ Action ."an 2eigniting the

entrepreneuria" spirit in $urope201! is to in%rease t#e ,eve, o( emp,oyment t#ro)

rein(or%in& entreprene)rs#ip a%ross )rope' It invites F Mem+er States to.

assess t#e need o( amendin& %)rrent nationa, (inan%ia, ,e&is,ation $it# t#e aim o((a%i,itatin& ne$* a,ternative (orms o( (inan%in& (or start-)ps and SMs Lsma,, tomedi)m enterprises in &enera,* in parti%),ar as re&ards p,at(orms (or %ro$d ()ndin&'

"#e )ropean Commission Cons),tation aper Crowdfunding in the $&3$,p"oring the

added va"ue of potentia" $& action5%to+er 201! pointed o)t t#at.

)ropean SMs ,ar&e,y depend on +ank (inan%in&* +)t sin%e t#e (inan%ia, %risis +anksare m)%# more restri%tive in t#eir ,endin&'

In %onse


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S)+se


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Anot#er respondent des%ri+ed t#e (inan%in& pro+,ems (or t#ese enterprises in terms o( t#e

va,,ey o( deat#/.

"#e va,,ey o( deat# represents t#e sta&e in t#e &ro$t# %y%,e o( an ear,y sta&e +)siness at $#i%#

t#ose ear,y sta&e +)sinesses #ave* on +a,an%e* not yet mat)red in t#eir net$orks and risk pro(i,eto identi(y and attra%t s)((i%ient %apita, (rom eterna, so)r%es to ena+,e t#em to %ommer%ia,ise

t#eir prod)%ts and servi%es to a ,eve, at $#i%# t#e risk pro(i,e is s)((i%ient,y improved to ena+,e

sop#isti%ated investors and pro(essiona, investors to risk t#eir %apita, in s)%# %ompanies'

CS* it $as ar&)ed* %o),d +e one means (or dea,in& $it# $#at $as %,aimed to +e t#is

systemi% market (ai,)re to ()nd ear,y sta&e %ompanies +y $idenin& t#e investor +ase to

in%,)de t#e retai, %ro$d' A,so* a s)%%ess(), initia, ()ndraisin& %ampai&n t#ro) CS

may assist in any s)+se


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In re&ard to $#et#er CS s#o),d* in prin%ip,e* +e (a%i,itated* CAMAC sees t#e potentia,

(or CS to en%o)ra&e t#e A)stra,ian start-)p entreprene)ria, se%tor* espe%ia,,y in t#e

%r)%ia, ear,y sta&es o( proe%t and prod)%t deve,opment' A,so* enterprises t#at are ()nded

t#ro) CS and prove to +e %ommer%ia,,y s)%%ess(), may provide meanin&(), ret)rns to

t#eir %ro$d investors* as $e,, as %reatin& emp,oyment and ot#er %onse


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CAMAC %onsiders t#at t#e etent to $#i%# &en)ine investor %on%erns mit +e addressed

$o),d part,y depend on t#e nat)re o( any re&),atory str)%t)re emp,oyed (or t#is (orm o(

()ndraisin&* i( (a%i,itated* in%,)din& appropriate investor sa(e&)ards' CAMAC #as

%are(),,y %onsidered t#ese matters in s)+se


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pro#i+ition on proprietary %ompanies makin& p)+,i% e


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()nds t#ro) CS' A,so* t#e set-)p and on&oin& %omp,ian%e %osts o( a p)+,i% %ompany

%o),d a+sor+ a si&ni(i%ant proportion o( any ()nds raised (rom t#e %ro$d' "#ose %osts

$o),d +e in addition to t#e %osts invo,ved in an iss)er makin& o((ers to t#e %ro$d t#ro)

an on,ine intermediary'

2.! hat po#icy option to faci#itate CS)* shou#d,e adopted-

"#e a,ternative po,i%y options to (a%i,itate CS %onsidered +y CAMAC are.

,ption 1 ad)st t#e re&),atory str)%t)re (or proprietary %ompanies

,ption 2 %on(ine CS o((ers to a ,imited %,asses o( investors

,ption 3 amend t#e ()ndraisin& provisions (or p)+,i% %ompanies

,ption " introd)%e a re&),atory re&ime spe%i(i%a,,y desi&ned (or CS'

2.!.1Summary of the CAMAC position

or t#e reasons set o)t +e,o$* CAMAC s)pports 5ption 4 as t#e +est means to (a%i,itate

CS in A)stra,ia'

2.!.2ther /urisdictions

New Zealand, USA and Canada

"#ese )risdi%tions #ave adopted 5ption 4* t#o) t#e Ne$ Hea,and ,it to)%#/

re&),atory re&ime (o%)ses on t#e ,i%ensin& o( intermediaries* and does not (),,y dea, $it#

t#e ran&e o( iss)es %on%ernin& iss)ers* intermediaries and investors )nder %onsideration in

t#e FSA and Canada'

UK

"#e FG #as adopted 5ption 2 name,y to %on(ine CS to sop#isti%ated investors and

,imited %,asses o( retai, investors* +ein&.

retai, %,ients $#o are %erti(ied or se,(-%erti(y as sop#isti%ated investors

retai, %,ients $#o are %erti(ied as #i net $ort# investors

retai, %,ients $#o %on(irm +e(ore a promotion is made t#at* in re,ation to t#einvestment promoted* t#ey $i,, re%eive re&),ated investment advi%e or investment

mana&ement servi%es (rom an a)t#orised person* or

retai, %,ients $#o %erti(y t#at t#ey $i,, not invest more t#an 10P o( t#eir net investi+,e

port(o,io i'e' e%,)din& t#eir primary residen%e* pensions and ,i(e %over in )n,isted

s#ares or )n,isted de+t se%)rities'

"#e re,evant r),es %ommen%ed operation in Apri, 2014'

2.!.o#icy ption 13Ad/ust the regu#atory structure forproprietary companies

"#is $o),d invo,ve s)+stantia,,y ,i+era,isin& t#e sma,,-s%a,e o((ers eemption (or p)+,i%

o((ers +y proprietary %ompanies* as $e,, as s)+stantia,,y in%reasin& t#e n)m+er o(


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permitted s#are#o,ders o( a proprietary %ompany* %)rrent,y %apped at 0 non-emp,oyee

s#are#o,ders* or dispensin& $it# t#at %ap a,to&et#er'

Submissions

"#ere $as s)pport in a n)m+er o( s)+missions (or ,i+era,isin& t#e sma,,-s%a,e o((erseemption on p)+,i% o((ers +y proprietary %ompanies' o$ever* it $as re%o&nised t#at t#e

n)m+er o( permitted o((ers $o),d #ave to +e in%reased s)+stantia,,y* possi+,y into t#e

#)ndreds or more* to permit an iss)er to raise s)((i%ient seed e


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CAMAC position

#i,e ,imitin& t#e %,ass o( permitted investors* as )nder t#e FG approa%#* may prote%t

many retai, investors (rom some o( t#e possi+,e risks o( CS* it $o),d not (a%i,itate

CS in t#e tr)e sense +)t $i,, de,iver %ro$d ()ndin& $it#o)t t#e %ro$d/' It is a,so

ar&)a+,e t#at restri%tin& t#e poo, o( potentia, investors in t#is manner may not a,,o$ (or ameanin&(), ,eve, o( %apita, to +e raised t#ro) CS in many instan%es'

2.!.%o#icy ption 3Amend the fundraising provisionsfor pu,#ic companies

Submissions

Many respondents $ere o( t#e vie$ t#at t#e )n,isted p)+,i% %ompany str)%t)re is

inappropriate (or t#e types o( start-)p and ot#er sma,, enterprises t#at $o),d seek to raise

%apita, t#ro) CS* &iven t#e %)rrent &overnan%e and %omp,ian%e re


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f#ndraising$ t#e re&),ation o( t#e o((er pro%ess to t#e %ro$d t#ro) spe%i(i%a,,y

tai,ored provisions app,i%a+,e to iss)ers* intermediaries and %ro$d investors' In

deve,opin& its approa%#* CAMAC re%o&nised t#e need to ens)re t#at a re&),atory

str)%t)re (or on,ine ()ndraisin& does not %reate dis%repan%ies in t#e A)stra,ian

re&),atory environment (or %orporate %apita, raisin& t#at %o),d +e ep,oited to t#edetriment o( investors &enera,,y or ot#er iss)ers'

"#ese matters are ()rt#er o)t,ined in Se%tions 2'6'! to 2'6'* +e,o$* and are (),,y

dis%)ssed in C#apters 4 to 6 o( t#is report'

"#is po,i%y approa%# provides t#e ne%essary (,ei+i,ity to desi&n a spe%i(i% str)%t)re (or

CS $it#o)t t#e s#ort%omin&s o( t#e ot#er po,i%y options dis%)ssed a+ove'

2.% hat issues arise in imp#ementing therecommended po#icy option-

In %onsiderin& t#is


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In e((e%t* t#e %o,,e%tive $isdom o( t#e %ro$d/* a %on%ept so o(ten emp,oyed +y s)pporters

o( CS* may +e%ome t#e adverse )d&ment o( t#e %ro$d/ and t)rna&ainst t#is (orm o(

()ndraisin&' "#is may a%t to t#e detriment o( +ona (ide and potentia,,y via+,e sma,,

enterprises* $#i%# %o),d #ave +ene(ited (rom t#e (inan%ia, s)pport o( t#e %ro$d and %o),d

#ave ret)rned rea, +ene(its to t#ose $#o ot#er$ise may #ave invested'

In t#e vie$ o( CAMAC* prod)%tivity and %ompetitiveness are +est promoted t#ro) a

re&),atory +a,an%e t#at takes into a%%o)nt t#e ,e&itimate perspe%tives o( iss)ers* %ro$d

investors and intermediaries' A &ood )nderstandin& +y a,, t#ese parties o( #o$ CS

$orks* $#at it is intended to a%#ieve and $#at risks are invo,ved $o),d +e essentia, in

esta+,is#in& m)t)a, tr)st'

5n some matters a (irmer to)%# o( re&),ation may +ene(it a,, parties in t#e CS pro%ess'

or instan%e* a str)%t)red re&),atory approa%# to t#e %ontent o( an e


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-ooking ahead

2.%.25armoni6ation with other /urisdictions

CS is a $or,d-$ide p#enomenon* &iven t#e &,o+a, rea%# o( t#e internet and t#e %apa%ity

o( iss)ers to make o((ers to %ro$d investors $#erever ,o%ated' o$ vario)s )risdi%tions

#ave %#osen to respond to* and re&),ate* t#is a%tivity is t#ere(ore dire%t,y re,evant to any

%onsideration o( its re&),ation in A)stra,ia'

In %onsiderin& t#e spe%i(i% e,ements o( a re&),atory str)%t)re (or CS in A)stra,ia*

CAMAC takes t#e vie$ t#at t#ere is va,)e in endeavo)rin& to #ave a de&ree o( re&),atory

%onsisten%y $it# ot#er )risdi%tions %on%ernin& t#is (orm o( ()ndraisin&' "#is may +etter

ens)re t#at t#e %ro$d #as a %ompara+,e ,eve, o( prote%tion (or a,, internet-+ased e


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-ooking ahead

"#e FG %omes (rom a di((erent re&),atory dire%tion' #ereas t#e ot#er )risdi%tions treat

t#e possi+,e ,a%k o( a se%ondary market in e


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-ooking ahead

investors$ investor caps. Ne$ Hea,and #as no investor %ap* $#ereas CAMAC

proposes %aps on t#e ()nds a %ro$d investor %an invest $it# ea%# iss)er* and iss)ers

%o,,e%tive,y* in a 12 mont# period Se%tion 6'4' it#o)t any %ap* %ro$d investors

%o),d p,a%e m)%# o( t#eir net $ort# in #i (inan%ia, risk vent)res* many o( $#i%#

may (ai,'

In(ormation on re,evant approa%#es proposed or adopted in t#ese ot#er )risdi%tions is

in%,)ded* )nder t#e #eadin& ,ther #risdictions in ea%# o( t#e re&),atory matters

%onsidered in t#e s)+se


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-ooking ahead

Some o( t#e key imp,i%ations o( t#ese proposed re


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-ooking ahead

an intermediary m)st re%eive se,(-%erti(i%ation (rom ea%# %ro$d investor t#at t#e

investor #as not +rea%#ed any investment %ap* +e(ore any s#are a%


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-ooking ahead

2.7 u,#ic interest enterprises

Eario)s %ommentators #ave o+served t#at CS may o((er ne$ (inan%in& opport)nities (or

%orporate entities operatin& in t#e not-(or-pro(it* %omm)nity interest and p#i,ant#ropi%

se%tors'

"#e


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-ooking ahead

an opport)nity to stren&t#en %omm)nity parti%ipation in ,o%a, deve,opment +yena+,in& s#ared o$ners#ip* stren&t#enin& so%ia, %apita,* and ens)rin& a stron&er ,ink+et$een investment and ,o%a, priorities'

It $as s)+mitted t#at a spe%i(i%a,,y desi&ned ,it to)%#/ re&),atory re&ime s#o),d +e

adopted in re&ard to CS (or so%ia, enterprises* on t#e +asis t#at any re&),atory re&imes#o),d not #ave t#e )nintended %onse


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-ooking ahead

State ,a$s* may res),t in si&ni(i%ant,y in%reased %ompetitive disadvanta&es (or

%ooperatives in &ainin& e


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The corporate form to faci#itate CS)*

This chapter sets out the e"ements of the proposed ;e,empt pub"ic company structure that

issuers cou"d adopt to undertake equity offers to the crowd!

.1 verview

"#e %on%ept o( CS is aimed prin%ipa,,y at (a%i,itatin& ()ndraisin& +y start-)p and ot#er

sma,,-s%a,e enterprises' "ypi%a,,y* s)%# enterprises $o),d in t#e past #ave +een

in%orporated as proprietary* rat#er t#an p)+,i%* %ompanies' Nevert#e,ess* (or a start-)p or

ot#er sma,,-s%a,e enterprise to raise ()nds t#ro) CS* CAMAC %onsiders t#at it s#o),d

+e in%orporated as a p)+,i% %ompany* &iven t#at it $i,, +e makin& an o((er to t#e p)+,i%* in

t#e (orm o( t#e on,ine %ro$d* and $i,, #ave t#ose mem+ers o( t#e p)+,i% $#o a%%ept t#eo((er as its s#are#o,ders' o$ever* to over%ome t#e %)rrent disin%entives on promoters to

(orm a p)+,i% %ompany* a ne$ %,assi(i%ation o( eempt p)+,i% %ompany/ s#o),d +e

%reated'

"#is %,assi(i%ation s#o),d app,y on,y (or a ,imited period* to provide an iss)er $it# t#e

opport)nity to raise ()nds (rom t#e %ro$d in t#e ear,y sta&es o( its deve,opment* (ree o(

t#e )s)a, &overnan%e and ot#er o+,i&ations o( a p)+,i% %ompany'

;)rin& t#is ,imited period* an eempt p)+,i% %ompany s#o),d +e re,ieved (rom some o( t#e

%omp,ian%e provisions ot#er$ise app,i%a+,e to p)+,i% %ompanies' It %o),d en&a&e in CS

)nder t#e terms o( t#e provisions re&),atin& t#is (orm o( ()ndraisin& as dis%)ssed in

C#apters 4 to 6 o( t#is report* in ,ie) o( #avin& to %omp,y $it# t#e p)+,i% ()ndraisin&

dis%,os)re provisions in C#apter 6; o( t#e Corporations A%t'

An iss)er t#at %#ooses to +e a p)+,i% %ompany $it#o)t t#is eempt stat)s* or a(ter t#at

stat)s #as epired* %o),d a,so seek to raise ()nds (rom t#e %ro$d )nder t#e CS

provisions in ,ie) o( t#e C#apter 6; p)+,i% ()ndraisin& re


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The corporate form to faci"itate C($5

maim)m period $it# a ,imited e%eption* a(ter $#i%# t#e iss)er $o),d +e%ome a

p)+,i% %ompany* s)+e%t to a,, t#e %omp,ian%e o+,i&ations o( t#at type o( %ompany'

a%# o( t#ese matters is ()rt#er %onsidered in t#is %#apter'

.2 8ecoming an e$empt pu,#ic company

"#e p)rpose o( +e%omin& an eempt p)+,i% %ompany $o),d +e to seek p)+,i% investment

t#ro) t#e CS pro%ess' An enterprise t#at intends to re,y on,y on private (orms o(

()ndraisin& in%,)din& t#e s 708 e%eptions may +e +etter p,a%ed* in terms o( re,ative

%omp,ian%e o+,i&ations* to in%orporate as a proprietary %ompany and retain t#at stat)s'

.2.1"ncorporation

New companies

rovision s#o),d +e made (or t#e in%orporation o( an entity as an eempt p)+,i%

%ompany/* s)+e%t to %omp,ian%e $it# t#e stat)tory re&istration re


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%irectors

C)rrent,y* a p)+,i% %ompany m)st #ave at ,east t#ree dire%tors* t$o o( $#om m)st

ordinari,y reside in A)stra,ia'4

ASIC s#o),d #ave t#e dis%retion to ad)st t#is re


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%ompany s#o),d re


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3iven t#is* CAMAC %onsiders t#at t#ere does not appear to +e a %ompe,,in& reason to

impose an o+,i&ation in t#e %ontet o( CS $#i%# does not arise in ot#er sit)ations $#ere

t#e p)+,i% may +e invo,ved as s#are#o,ders o( a %ompany'

An intermediary t#at #as %on%erns a+o)t t#e a+i,ity o( one or more individ)a,s to (),(i, t#ero,e o( dire%tor %o),d %#oose to de%,ine to in%,)de t#e iss)er on its $e+site' In some

instan%es* an intermediary may de%ide to do so to preserve its %ommer%ia, rep)tation

%on%ernin& t#e iss)ers it is prepared to ,ist'

.2.!ther forms of fundraising

CAMAC %onsiders t#at an eempt p)+,i% %ompany s#o),d +e permitted to raise e


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In t#e vie$ o( CAMAC* an eempt p)+,i% %ompany %o),d +e re,ieved o( some o( t#ese

o+,i&ations* in parti%),ar.

t#e o+,i&ation to disp,ay t#e %ompany name11

t#e o+,i&ation (or mandatory o((i%e openin& #o)rs'12

o$ever* t#e ot#er re&istered o((i%e o+,i&ations on p)+,i% %ompanies* in%,)din&

in(ormation on #o$ to %onta%t t#e %ompany*1!$o),d remain'

..2Appointment of an auditor

A p)+,i% %ompany m)st appoint an independent a)ditor o( t#e %ompany $it#in one mont#

o( its re&istration*14 to +e %on(irmed at t#e (irst ann)a, &enera, meetin& A3M o( t#e

%ompany'1"#e +)siness o( t#e A3M may in%,)de t#e appointment o( t#e a)ditor and t#e

(iin& o( t#e a)ditor/s rem)neration* even i( t#ose matters are not re(erred to in t#e noti%e

o( meetin&'

16

"#ere is a &enera, o+,i&ation (or %ompanies to #ave t#eir (inan%ia, reportsa)dited*17t#o) sma,, proprietary %ompanies on,y #ave to prepare a (inan%ia, report and

#ave it a)dited in %ertain %ir%)mstan%es'18

CAMAC proposes s)spendin& t#e need (or an eempt p)+,i% %ompany to appoint an

a)ditor* and #ave its ann)a, (inan%ia, report a)dited see ()rt#er +e,o$* )nti, s)%# time as

it #as raised O1*000*000 t#ro) CS or any ot#er prospe%t)s eemption t#e in%ome

t#res#o,d and* in addition* #as epended O00*000 t#e ependit)re t#res#o,d' "#e

p)rpose o( t#e t$o-(o,d test is to re


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t#e dire%tors o( t#e %ompany $o),d +e s)+e%t to t#e stat)tory d)ties to a%t $it# d)e %are

and di,i&en%e and in &ood (ait#'20

..0isc#osing entity requirements

Fn,isted %ompanies t#at #ave raised ()nds (rom at ,east 100 persons )sin& a dis%,os)re

do%)ment ,od&ed $it# ASIC )nder C#apter 6; o( t#e Corporations A%t are dis%,osin&

entities'21

Any %ompany t#at is a dis%,osin& entity/ )nder t#is test $o),d +e ine,i&i+,e to +e an

eempt p)+,i% %ompany see Se%tion !'2'1* s)pra' CAMAC %onsiders t#at* in prin%ip,e

a,so* t#e pre(erred position is t#at an eempt p)+,i% %ompany s#o),d not +e a dis%,osin&

entity' Some o( t#e %onse


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(inancial report

"#e %ontent o( t#e ann)a, (inan%ia, report is pres%ri+ed +y ,e&is,ation* in%,)din& vario)s

de%,arations +y dire%tors and ot#ers %on%ernin& so,ven%y and %omp,ian%e $it# a%%o)ntin&

standards'29

CAMAC %onsiders t#at t#ese o+,i&ations s#o),d remain (or an eempt p)+,i% %ompany*

s)+e%t to re,ie( (rom t#e stat)tory o+,i&ation t#at t#e report +e a)dited!0 in some

%ir%)mstan%es as des%ri+ed in Se%tion !'!'2* a+ove' "#is $i,, invo,ve a%%o)ntin& %osts

(or a,, eempt p)+,i% %ompanies* +)t not additiona, a)ditin& %osts'

As an eempt p)+,i% %ompany s#o),d not +e a dis%,osin& entity* it $o),d #ave no

o+,i&ation to prepare a #a,(-year (inan%ia, report'!1

%irectors) report

"#e dire%tors/ report (or any p)+,i% %ompany m)st in%,)de &enera, in(ormation a+o)t t#e

operation o( t#e %ompany* in%,)din& its prin%ipa, a%tivities and o)t%omes d)rin& t#e year*and some (or$ard-,ookin& in(ormation'!2 "#ere is an eemption (rom dis%,os)re o( any

matter t#e p)+,i%ation o( $#i%# $o),d res),t in )nreasona+,e pre)di%e/ to t#e %ompany' !!

"#e report m)st a,so %ontain in(ormation a+o)t t#e %orporate str)%t)re and any dividend

distri+)tions'!4

CAMAC %onsiders t#at a,, s#are#o,ders* in%,)din& %ro$d investors* #ave a ,e&itimate

interest in +ein& in(ormed ann)a,,y a+o)t a,, t#ese matters' A,so* t#e o+,i&ation to provide

in(ormation on t#e %orporate str)%t)re $o),d on,y impose an administrative +)rden on t#e

%ompany to t#e etent t#at it %reated a %omp,e str)%t)re in t#e (irst p,a%e'

"#ere are additiona, reportin& re


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"#e same rits to %a,, a &enera, meetin& (or t#e p)rpose o( %onsiderin& a s)ita+,e

reso,)tion s#o),d app,y in t#e %ontet o( eempt p)+,i% %ompanies'

..%Meetings of shareho#ders

Annual eneral meetins

A,, p)+,i% %ompanies m)st #o,d an A3M at ,east on%e in ea%# %a,endar year and $it#in

(ive mont#s a(ter t#e end o( t#eir (inan%ia, year )n,ess ASIC &rants an etension or

eemption'!6"#e A3M is t#e on,y s#are#o,der meetin& t#at p)+,i% %ompanies are o+,i&ed

to #o,d'!7

"#e A3M serves vario)s p)rposes in t#e &enera, en&a&ement pro%ess +et$een %ompanies

and t#eir s#are#o,ders and is a me%#anism (or a%%o)nta+i,ity o( t#ose in %ontro, o( t#e

%ompany' "#e A3M is a (or)m (or.

reporting%to in(orm s#are#o,ders a+o)t vario)s (inan%ia, and ot#er matters %on%ernin&

t#e %ompany* prin%ipa,,y t#ro) %onsideration o( t#e ann)a, (inan%ia, report*dire%tors/ report and a)ditor/s report!8

questioning% to provide an opport)nity (or s#are#o,ders to ask


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ot#er permissi+,e reso,)tions %on%ernin& t#e %ompany t#at may a,so %onvenient,y +e

%onsidered at t#e A3M* s)%# as reso,)tions to amend t#e %ompany/s %onstit)tion* 4!

ad)st t#e s#are %apita, in some manner*44or remove one or more dire%tors'4

#i,e not seekin& to red)%e t#e si&ni(i%an%e o( t#e A3M as a (or)m (or dis%)ssion anda%%o)nta+i,ity* CAMAC sees some si&ni(i%ant pra%ti%a, di((i%),ties* and %osts* t#at CS

iss)ers $o),d (a%e i( t#ey $ere o+,i&ed to #o,d an A3M d)rin& t#e period t#at t#ey are an

eempt p)+,i% %ompany'

or instan%e* %opies o( t#e A3M noti%e and a,, t#e a%%ompanyin& in(ormation m)st +e

sent +y post to s#are#o,ders* e%ept (or t#ose persons $#o #ave e,e%ted to re%eive t#is

in(ormation e,e%troni%a,,y'46"#is %o),d +e an epensive eer%ise in t#e ear,y sta&es o( a

start-)p enterprise* parti%),ar,y i( it #as %ro$d investors' A,so* t#e A3M m)st +e #e,d at a

reasona+,e time and p,a%e/'47 Companies may )se te%#no,o&y to #o,d an A3M at more

t#an one ven)e*48 +)t t#e ena+,in& provision makes no re(eren%e to s#are#o,ders

parti%ipatin& t#ro) t#e internet* nor to an A3M +ein& #e,d on,y on,ine' o,din& an

A3M $o),d a,so re


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"#e stat)tory pro%ed)res (or ot#er s#are#o,der meetin&s*49as $e,, as t#e spe%ia, r),es (or

reso,)tions (or t#e appointment o( p)+,i% %ompany dire%tors*0 s#o),d app,y to eempt

p)+,i% %ompanies'

..&)$ecutive remuneration"#e pro%ed)re (or sett,in& t#e rem)neration o( ee%)tive and non-ee%)tive dire%tors o( a

p)+,i% %ompany is a matter (or ea%# %ompany' "#e dire%tors o( p)+,i% %ompanies t#at

%#oose to +e &overned +y t#e rep,a%ea+,e r),es %ontained in t#e Corporations A%t 1 are

paid t#e rem)neration determined +y ordinary reso,)tion o( s#are#o,ders'2o$ever* t#ese

%ompanies may make a,ternative arran&ements in t#eir %onstit)tions (or determinin& t#e

rem)neration o( dire%tors* (or instan%e* ,eavin& t#is matter (or de%ision +y t#e +oard'

:em)neration provided +y a p)+,i% %ompany to a dire%tor is a re,ated party/ transa%tion' !

It is pro#i+ited )n,ess it is reasona+,e/ or is approved +y s#are#o,ders' 4#at %onstit)tes

reasona+,e rem)neration is determined +y re(eren%e to t#e %ir%)mstan%es o( t#e %ompany

and t#e responsi+i,ities invo,ved in t#e o((i%e' S#are#o,ders n)m+erin& at ,east 100mem+ers $#o are entit,ed to vote at a s#are#o,der meetin& or %o,,e%tive,y #o,d at ,east P

o( t#e votes t#at may +e %ast at a &enera, meetin& %an* at any time* o+tain in(ormation

a+o)t t#e rem)neration paid to dire%tors'

CAMAC %onsiders t#at t#ese re


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arran&ements in t#e interests o( a,, mem+ers o( t#e %ompany' o$ever* %ro$d investors

may or may not #ave votin& rits in re&ard to ee%)tive termination arran&ements'62

..:Re#ated party transactions

"#e stated p)rpose o( t#e re,ated party transa%tion re


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CAMAC does not %onsider t#at t#ere are any %ompe,,in& reasons (or dispensin& $it# t#ese

re


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.! Shareho#der rights

"#is dis%)ssion o( s#are#o,der rits app,ies to a,, CS iss)ers* $#et#er eempt or

non-eempt p)+,i% %ompanies'

.!.1Crowd e$pectations

In %onsiderin& t#e rits o( %ro$d s#are#o,ders* it s#o),d +e re%o&nised t#at t#ese

investors may di((er %onsidera+,y amon&st t#emse,ves in $#at t#ey epe%t in ret)rn (or

t#eir investment'

or instan%e* some %ro$d investors may see t#eir ro,e essentia,,y as assistin& a parti%),ar

so%ia,,y $ort#$#i,e proe%t' A,t#o) t#ey a%


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t#e risks to p)r%#asers o( t#e se%)rities re,atin& to minority o$ners#ip in t#e iss)er and

t#e risks asso%iated $it# %orporate a%tions in%,)din& additiona, iss)an%es o( se%)rities*

iss)er rep)r%#ases o( se%)rities* a sa,e o( t#e iss)er or o( assets o( t#e iss)er or

transa%tions $it# re,ated parties* and

a des%ription o( t#e restri%tions on t#e trans(er o( t#e se%)rities'

Canada

It is not proposed to re


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atta%#ed to any ot#er s#ares t#at t#e %ompany #as iss)ed* or %an 68iss)e* are (),,y dis%,osed

to t#e %ro$d in t#e o((er dis%,os)re do%)ments in a %,ear* %ompre#ensive and transparent

manner' "#at %omparison m)st in%,)de rits t#at are atta%#ed to any ot#er s#ares in t#e

%ompany +)t t#at are not avai,a+,e to t#e s#ares o((ered to t#e %ro$d'

CAMAC o+serves t#at %omp,ian%e +y an iss)er $it# t#e proposed dis%,os)re re


52/245



s#mmar' of e5#it' str#ct#re$$#at is t#e eistin& e


53/245



investors' At t#e same time* o( %o)rse* t#ere $i,, +e more e


54/245



.% )$piration of the e$empt status

"#e eempt p)+,i% %ompany stat)s proposed +y CAMAC is spe%i(i%a,,y desi&ned to

(a%i,itate CS +y start-)p and ot#er sma,,-s%a,e enterprises in t#e ear,y sta&es o( t#eir

&ro$t#' o$ever* d)rin& s)%# time as an iss)er is an eempt p)+,i% %ompany* %ro$dinvestors $i,, not #ave t#e +ene(it o( t#e (),, %orporate &overnan%e* and ot#er*

re


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! The crowdfunding process= issuers

This chapter sets out the proposa"s to permit issuers to offer their equity to the crowd!

!.1 verview

It is proposed t#at an eempt or non-eempt p)+,i% %ompany dis%)ssed in C#apter ! may

seek ()nds (rom t#e %ro$d +y o((erin& its e


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The crowdfunding process% issuers

!.2 ermitted issuers

)ss#e$ sho#ld there e restrictions on the t'pes of iss#ers permitted to emplo' CS!6

!.2.1ther /urisdictions

USA

"#e ena+,in& %ro$d()ndin& provisions o( t#e >5BS A%t app,y to FS in%orporated iss)ers'

"#e provisions in t#e >5BS A%t pre-empt re&),ation o( t#ese iss)ers +y t#e ,a$s o( t#e

vario)s States o( t#e FSA in re,ation to t#e ()ndraisin& pro%ess'

A,so* t#e >5BS A%t e%,)des investment ()nd %ompanies )ti,isin& CS to distri+)te t#eir

se%)rities'

"#e SC #as a,so proposed to e%,)de a %ompany t#at #as no spe%i(i% +)siness p,an or #as

indi%ated t#at its +)siness p,an is simp,y to en&a&e in a mer&er or a%


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Canada

Fnder t#e proposa,s* e,i&i+,e iss)ers m)st +e in%orporated or or&aniDed in Canada* $it#

t#eir #ead o((i%es sit)ated in Canada* and t#e maority o( t#eir dire%tors m)st +e Canadian

residents' Bot# reportin& iss)ers and non-reportin& iss)ers are e,i&i+,e to raise ()nds

t#ro) CS* t#o) some iss)ers are e%,)ded* prin%ipa,,y investment ()nds or iss)ersinvo,ved in +,ind poo,s/ see +e,o$'

In app,yin& CS opport)nities to reportin& as $e,, as non-reportin& iss)ers* t#e 5SC

%ommented t#at.

As t#e overa,, &oa, o( o)r %ro$d()ndin& initiative is to (a%i,itate %apita, raisin& (orstart-)ps and sma,, and medi)m-siDed enterprises SMs* $e t#ink t#e eemptions#o),d +e avai,a+,e to +ot# reportin& iss)ers and non-reportin& iss)ers'

e #ave +een advised t#at reportin& iss)ers may $is# to raise %apita, t#ro)%ro$d()ndin&* parti%),ar,y vent)re iss)ers t#at may +e eperien%in& di((i%),ties inraisin& %apita, t#ro) more traditiona, means in t#e %)rrent e%onomi% environment'

e s)pport a,,o$in& reportin& iss)ers to raise %apita, t#ro) %ro$d()ndin& asreportin& iss)ers s#o),d not #ave (e$er %apita, raisin& options t#an non-reportin&iss)ers* parti%),ar,y sin%e reportin& iss)ers #ave a %ontin)o)s dis%,os)re re%ord andare s)+e%t to re&),atory oversit'

Sit)ations t#at invo,ve a +,ind poo,/ in%,)de $#ere.

an iss)er does not #ave a $ritten +)siness p,an settin& o)t its +)siness or proposed

+)siness* its &oa,s or mi,estones and a p,an (or rea%#in& t#ose &oa,s or mi,estones

t#e pro%eeds o( a distri+)tion $i,, +e )sed primari,y +y t#e iss)er to invest in* mer&e

$it# or a%


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+anks or ot#er (inan%ia, instit)tions

any ot#er AS? #o,der or entity a%tin& as an A;I* %)stodian or depository servi%e'

Some s)+missions opposed restri%tions on t#e %,asses o( entities permitted to emp,oy

CS* $it# t#e (o,,o$in& ran&e o( reasons +ein& p)t (or$ard +y vario)s respondents.

A)stra,ian %ompanies s#o),d #ave a%%ess to t#e +roadest ran&e o( so)r%es o( %apita,

and markets

(irms o)tside any spe%i(ied %ate&ory may nevert#e,ess #ave t#e %apa%ity to &enerate

innovation* emp,oyment and e%onomi% &ro$t#

t#e &oa, o( improvin& t#e e((i%ien%y $it# $#i%# %apita, is re%y%,ed (rom #o)se#o,d

savin&s into +)siness investment does not re


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CS* &iven t#at t#ey $o),d no ,on&er +e start-)ps or sma,,-s%a,e enterprises* and $o),d

norma,,y #ave t#e (inan%ia, %apa%ity to make re&),ated p)+,i% o((ers )nder C#apter 6; i(

t#ey $is#ed to raise additiona, %apita,'

CAMAC does not s)pport t#e ()rt#er step o( ,imitin& CS to iss)ers %,assi(ied asinnovative start-)ps/' #i,e t#e CS pro%ess is intended to assist $ort#$#i,e innovative

proe%ts* imposin& some %,assi(i%ation o( t#is nat)re as a pre%ondition to o((erin& e5BS A%t provisions app,y to e


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se%)rities* s)%# as derivatives and se%)ritiDed prod)%ts* to +e o((ered )nder t#e LCSprovisions'


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"#ere $as a &enera, vie$ t#at %omp,e (inan%ia, instr)ments* s)%# as derivatives* $o),d

+e too %omp,i%ated (or retai, investors and )nne%essary (or most CS iss)ers* and t#e

asso%iated investment risks $o),d not +e proper,y appre%iated'

!..CAMAC positionCAMAC s)pports t#e Ne$ Hea,and approa%# o( ,imitin& CS to one %,ass o( s#ares*

e%,)din& options and %onverti+,e se%)rities* to&et#er $it# t#e reew equity

)ss#e$ sho#ld CS! e limited to new e5#it' iss#es6

!.!.1ther /urisdictions

USA

"#e >5BS A%t app,ies to distri+)tions +y an iss)er o( its o$n se%)rities' It is not avai,a+,e

as a means (or eistin& se%)rity #o,ders to on-se,, t#eir se%)rities in an iss)er'

Canada

Fnder t#e proposa,s* %ro$d()ndin& arran&ements are ,imited to primary o((ers +y an iss)er

o( its o$n se%)rities' It is not avai,a+,e as a means (or eistin& se%)rity #o,ders to on-se,,t#eir s#ares'


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An intermediary a%tin& in %onne%tion $it# CS o((ers o( a parti%),ar iss)er %annot a,so

a%t as an intermediary in any se%ondary transa%tions in t#ose se%)rities* s)%# as %,earin& or

sett,in& any trades in an iss)er/s se%)rities'

"#e 5SC %ommented t#at t#e CS provisions are intended to (a%i,itate %apita, raisin& +yiss)ers and not t#e resa,e o( se%)rities'

"#e 5SC pointed o)t t#at t#ese ,imitations app,y on,y to a%tivities in %onne%tion $it# a

distri+)tion o( se%)rities t#ro) t#e CS pro%ess' An intermediary may en&a&e in ot#er

types o( %ro$d()ndin& a%tivities t#at do not invo,ve a distri+)tion o( se%)rities* s)%# as

donation ()ndin&* re$ard ()ndin& or pre-p)r%#ase ()ndin&

!.!.2 Su,missions

A n)m+er o( respondents s)pported CS +ein& %on(ined to ne$ e


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!.% "ssuer cap

)ss#e$ sho#ld there e a cap and if so what amo#nt on the f#nds that an iss#er can

raise in a partic#lar period thro#gh CS!6 Sho#ld that iss#er cap incl#de an' f#nds

raised #nder the small7scale personal offers e+emption or the sophisticated investors8e+emption6

!.%.10i?erent types of caps

"#ere are t$o types o( %ap to %onsider in t#e %ontet o( CS.

iss#er caps$+ein& ,imits on t#e amo)nt o( ()nds an iss)er %an raise t#ro) CS

)s)a,,y per year' "#e p)rpose o( t#ese %aps is to restri%t t#e amo)nt an iss)er %an

raise (rom t#e %ro$d $it#o)t #avin& to %omp,y $it# t#e )s)a, o((er dis%,os)re

o+,i&ations* in t#e (orm o( a prospe%t)s or simi,ar do%)ment'

investor caps. +ein& ,imits on $#at an individ)a, investor %an invest t#ro) CS)s)a,,y per year' "#is may take t#e (orm o( a %ap on t#e ()nds t#at an individ)a,

investor may p,a%e $it# a parti%),ar iss)er in a %ertain period andor a %ap on t#e ()nds

t#at an individ)a, investor may p,a%e $it# iss)ers %om+ined in a %ertain period' "#e

p)rpose o( t#ese %aps is to ,imit an individ)a, investor/s epos)re to t#ese #i-risk

investments'

Caps dire%t,y impa%t on t#e ()nds t#at iss)ers %an raise t#ro) CS and #o$ many

investors t#ey $i,, need to attra%t to a%#ieve t#eir ()ndin& &oa,' Investor and iss)er %aps

are interre,ated in t#at t#e ,o$er a %ap on t#e amo)nt o( ()nds any %ro$d investor %an

p,a%e $it# ea%# iss)er* t#e more %ro$d investors ea%# iss)er may need to attra%t to rea%#

its ()ndin& tar&et'

"#is Se%tion dea,s $it# iss)er %aps' Investor %aps are dea,t $it# in Se%tion 6'4'

!.%.2ther /urisdictions

UK

"#ere is no pres%ri+ed iss)er %ap' o$ever* dependin& )pon t#e amo)nt so)t* an iss)er

may #ave to p)+,is# a prospe%t)s or ot#er dis%,os)re do%)ment'

New Zealand

Iss)ers may raise a tota, o( O2 mi,,ion in ea%# 12 mont# period t#ro) a %om+ination o(

CS to retai, investors and any ()ndraisin& t#ro) t#e Ne$ Hea,and e


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USA

A %ompany may raise no more t#an O1 mi,,ion in a 12 mont# period t#ro) CS t#at

amo)nt to +e periodi%a,,y ad)sted +ased on t#e %ons)mer pri%e inde'

"#e SC noted t#at.

"#e ,imitation on t#e amo)nt t#at may +e raised %o),d +ene(it investors +y red)%in&t#e potentia, (or di,)tion or (ra)d' o$ever* $e re%o&niDe t#at t#e %ap on t#emaim)m amo)nt t#at may +e so,d K a,so %o),d prevent %ertain iss)ers (rom raisin&a,, t#e %apita, t#ey need to make t#eir +)sinesses via+,e'

Canada

Through C($5

Fnder t#e proposa,s* t#ere is o( O1' mi,,ion ,imit on $#at any iss)er &ro)p/ may raise in

any 12 mont# period' An iss)er &ro)p in%,)des t#e iss)er* any a((i,iate o( t#e iss)er* and

any ot#er iss)er t#at is en&a&ed in a %ommon enterprise $it# t#e iss)er or $it# an a((i,iate

o( t#e iss)er'

As ep,ained +y t#e 5SC.

As t#e eemption is (o%)sed on (inan%in& (or start-)ps and SMs* $e t#ink adistri+)tion ,imit o( O1' mi,,ion is appropriate'

"#e imposition o( t#e o((erin& ,imit on t#e a&&re&ate pro%eeds raised +y t#e iss)er&ro)p* rat#er t#an on,y +y t#e iss)er* is intended to prevent t#e O1' mi,,ion o((erin&,imit (rom +ein& %ir%)mvented'

Through other means

It is proposed t#at d)rin& a CS o((er period* an iss)er %an raise ot#er ()nds )nder anyot#er permissi+,e eemptions (rom t#e Canadian prospe%t)s re


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re(eren%e to %osts asso%iated $it# provin& t#e %on%ept and t#e time and %ost ,ike,y to +e

invo,ved in +reakin& even and &eneratin& a pro(it'

"#ere $as some s)pport in s)+missions (or t#e Ne$ Hea,and approa%#* $#i%# $o),d

permit iss)ers to make some sma,,-s%a,e persona, o((ers a,on&side CS o((ers to retai,%,ients* provided t#e a&&re&ate ()nds raised are $it#in a %ap stip),ated +y ,e&is,ation* as

$e,, as +ein& a+,e to make additiona, )n%apped o((ers to sop#isti%ated investors' 5ne

s)&&estion* #o$ever* $as t#at t#e tota, amo)nt t#at an iss)er %o),d raise $it#in 12 mont#s

+y t#ese %om+ined met#ods +e identi(ied in t#e o((er do%)ment to %ro$d investors* to

avoid CS and sma,,-s%a,e persona, o((er investors )nkno$in&,y #avin& t#eir proportion

o( e


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Sop"isticated investors) e$emption

"#e proposed iss)er %ap s#o),d not in%,)de any ()nds raised )nder t#e sop#isti%ated

investors/ eemption in s 708 $#i%# in%,)des very ,ar&e minim)m s)+s%ription o((ers' A

simi,ar approa%# is taken in Ne$ Hea,and and Canada' It $o),d not +e in t#e interests o(

iss)ers* or t#eir %ro$d investors* to ,imit ()ndin& (rom t#is so)r%e'

Small&scale personal offers e$emption

"#e Ne$ Hea,and iss)er %ap in%,)des any ()nds raised +y t#e iss)er )nder t#e e


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In %onse


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"#e intermediary %ond)%tin& t#e CS o((er %annot a,so a%t as t#e intermediary (or t#ese

additiona, transa%tions* $#i%# m)st a,so +e dis%,osed in t#e iss)er/s marketin& materia,s to

investors in t#e CS o((er'

!.&.2CAMAC position#i,e re%o&nisin& t#at t#e Canadian approa%# seeks to promote (airness and e


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C5BS 4'7'1:. in(ormation to +e dis%,osed in dire%t o((er (inan%ia, promotions

C5BS 6'1. in(ormation %on%ernin& vario)s %#ar&es and rem)neration'

USA

Iss)ers $i,, +e re


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An intermediary $o),d +e pro#i+ited (rom re


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investors to de%ide $#et#er to a%


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-eve" of disc"osure "inked to any investor cap

"#e MA #as indi%ated t#at i( vo,)ntary investor %aps are not imposed* or t#ey are #i* or

t#e iss)er is tryin& to raise si&ni(i%ant amo)nts o( %apita,* t#e MA $o),d )s)a,,y epe%t

t#at t#e arran&ements (or dis%,os)re to t#e %ro$d in%,)de etra dis%,os)re s)%# as

providin& a +)siness p,an* detai,s o( #o$ ()nds $i,, +e )sed* key risks and key (inan%ia,in(ormation* s)%# as (inan%ia, statements'

Canada

"#e 5SC #as o+served t#at.

or %ro$d()ndin& to +e a via+,e met#od o( raisin& %apita,* investors m)st +e provided$it# appropriate in(ormation to make in(ormed investment de%isions $it#o)timposin& e%essive %osts on iss)ers'

"#e intention is t#at t#e dis%,os)res in an iss)er/s %ro$d()ndin& o((erin& do%)ment/

s#o),d +e stream,ined and (o%)s on materia, in(ormation t#at is re,evant to t#e iss)er/s

+)siness and an investment in t#e se%)rities o((ered'

An iss)er m)st make t#is do%)ment avai,a+,e to an investor t#ro) t#e intermediary

porta, +e(ore t#e investor enters into an a&reement to p)r%#ase t#e se%)rity' "#e iss)er

m)st a,so o+tain a si&ned risk a%kno$,ed&ement (rom t#e investor +e(ore enterin& into t#e

a&reement see ()rt#er Se%tion 6'' "#e iss)er m)st a,so provide a %opy o( t#e o((er

do%)ment to t#e re&),ator'

"#e o((er do%)ment m)st %omprise items* to&et#er $it# a %erti(i%ate (rom t#e iss)er t#at

t#e o((er do%)ment does not %ontain a misrepresentation'

)tem 1% 2equired statements

"#is invo,ves.

t#e risk $arnin& to investors'

)tem *% 5inancing facts

"#is invo,ves.

o((erin& s)mmary

des%ription o( se%)rities o((ered and re,evant rits

a+i,ity to rese,, se%)rities

rit o( a%tion (or misrepresentation and rit o( $it#dra$a,

%on%)rrent o((erin&s

)se o( pro%eeds

a+i,ity to a%#ieve net mi,estone or +)siness p,an

ot#er %ro$d()ndin& o((erin&s

persons promotin& and marketin& t#e o((erin&'

)tem =% )ssuer facts

"#is invo,ves.

+)siness o( t#e iss)er prin%ipa, risks (a%in& t#e +)siness


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(inan%ia, in(ormation

on&oin& in(ormation

minin& iss)er dis%,os)re Lre,evant on,y to Canada

%apita, str)%t)re

ee%)tive o((i%ers* dire%tors and ot#er prin%ipa,s

mana&ement %ompensation

re,ated party transa%tions

ot#er re,evant in(ormation'

)tem >% 2egistrant facts

"#is invo,ves.

re&istered ()ndin& porta,'

)tem ?% Contact information

"#is invo,ves.

%onta%t in(ormation (or t#e iss)er

%onta%t in(ormation (or t#e re&istered ()ndin& porta,'

Certificate

"#is invo,ves.

statement o( no misrepresentation'

Eario)s aspe%ts o( t#ese proposed dis%,os)re re


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Sec#rities holdings ' principals in an iss#er

"#e prin%ipa,s o( an iss)er seekin& to raise %apita, t#ro) CS are not re


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)ntended #se of CS! proceeds

"#e iss)er m)st state in t#e o((er do%)ment #o$ it intends to spend t#e net pro%eeds to +e

raised (rom a CS o((er* in%,)din& t#e prin%ipa, p)rposes to $#i%# pro%eeds $i,, +e

a,,o%ated* (or +ot# o( t#e (o,,o$in& %ir%)mstan%es.

a i( t#e iss)er raises t#e minim)m ()nds to +e raised in t#is o((erin&* and

+ i( t#e iss)er raises more t#an t#e minim)m ()nds'

"#e iss)er m)st a,so dis%,ose i( any o( t#e (o,,o$in& persons $i,, re%eive any pro%eeds

(rom t#e ()nds re%eived t#ro) CS dire%t,y or indire%t,y and* i( so* t#e amo)nt ea%#

person $i,, re%eive.

a any o( ee%)tive o((i%ers* dire%tors or (o)nders o( t#e iss)er*

+ any person promotin& or marketin& t#e CS o((er*

% any person $#o o$ns 20P or more o( t#e iss)er/s votin& se%)rities* or

d any ot#er person t#at is a re,ated party to t#e iss)er'

5ne respondent to t#e CAMAC aper proposed t#at dire%tors o( iss)ers +e o+,i&ed to si&n

and p)+,is# a de%,aration t#at no ()nds raised t#ro) CS s#a,, +e )sed +y dire%tors or

t#eir re,ated parties in a persona, %apa%ity'

!.7.2 Su,missions

A &enera, %omment in s)+missions $as t#at* in desi&nin& iss)er dis%,os)re re


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a des%ription o( t#e iss)er/s +)siness and +)siness p,an and t#e prin%ipa, risks (a%in&

t#e iss)er

%)rrent (inan%ia, statements adoptin&* (or instan%e t#e FS stepped approa%#

t#e %ompany/s mana&ement str)%t)re* invo,vin& detai,s o( dire%tors* o((i%ers and any

ot#er key personne, in%,)din& any s#are#o,ders $it# at ,east 20P o( t#e %)rrent iss)ed

s#ares* in%,)din& re,evant ski,,s and eperien%e o( t#ese persons t#e FS is proposin&

dis%,os)re o( re,evant eperien%e d)rin& at ,east t#e ,ast t#ree years and t#eir

rem)neration arran&ements

t#e %apita, str)%t)re o( t#e iss)er* in%,)din& any %,asses o( s#ares and t#eir parti%),ar

rits

t#e tar&et o((er amo)nt

t#e p)rpose (or $#i%# t#e ()nds raised $i,, +e )sed

detai,s o( a,, amo)nts paya+,e +y t#e iss)er in respe%t o( t#e e


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"#e o+servation $as a,so made in s)+missions t#at a key to any s)%%ess(), CS proe%t

is (or t#e iss)er to %reate en&a&ement $it# t#e p)+,i%' "#is is norma,,y a%#ieved via

$#atever means are appropriate to t#e proe%t Q additiona, in(ormation provided on a

$e+site* in(ormative videos* so%ia, media )pdates et%' ai,)re to provide t#is promotiona,

%ontent may res),t in a (ai,ed proe%t%apita, raisin&' "#is type o( materia, s#o),d not +e+anned* t#o) it does not (orm part o( t#e mandatory o((er do%)ment' Its %ontent s#o),d

+e s)+e%t to &enera, ,a$ prin%ip,es to %over any mis,eadin& or de%eptive %ontent'

5ne note o( reservation epressed in s)+missions $as t#at t#e dis%,os)re o( t#e key

aspe%ts o( an intended proe%t %o),d ,ead to inte,,e%t)a, property t#e(t* premat)re epos)re

to market %ompetition* and %opy%at a%tivities +y ot#er entities'

!.7.CAMAC position

Approac" to disclosure

CAMAC #as %onsidered a n)m+er o( possi+,e approa%#es to #o$ iss)ers s#o),d dis%,ose

in(ormation a+o)t t#emse,ves* and t#e o((er* to t#e %ro$d* takin& into a%%o)nt t#eo+servation in s)+missions t#at a +a,an%e needs to +e str)%k +et$een t#e need to provide

re,ia+,e and )se(), in(ormation to t#e %ro$d investor and t#e need to ens)re t#at t#e

dis%,os)re o+,i&ations are not )nd),y +)rdensome (or iss)ers'

5ne approa%# is an o((er dis%,os)re do%)ment (or CS mode,,ed on t#e o((er in(ormation

statement 5IS dis%,os)re re


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In t#e vie$ o( CAMAC* t#is is an instan%e $#ere &reater +)t not )nd)e dis%,os)re

pres%ription may +e in t#e interests o( a,, invo,ved parties'

"#e dis%,os)re o+,i&ation* and ,ia+i,ities (or +rea%#* s#o),d rest primari,y on t#e iss)er' An

intermediary provided +y an iss)er $it# a (),,y %omp,eted o((er do%)ment $o),d +eentit,ed to p)+,is# t#e o((er* s#ort o( a%t)a, kno$,ed&e o( some materia, misrepresentation

or omission or o( iss)er (ra)d Se%tion '10 and Se%tion '11'

CAMAC s)&&ests t#at t#e spe%i(i% e,ements o( a dis%,os)re temp,ate mit +est +e

deve,oped +y ASIC and %ontained* say* in an ASIC po,i%y do%)ment' "#e Commission

%o),d take into a%%o)nt t#e Canadian pre%edent* t#e FS approa%# parti%),ar,y its

re


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Securities "oldins b* principals in an issuer

"#e prin%ipa,s o( an iss)er seekin& to raise %apita, t#ro) CS may t#emse,ves #ave

,itt,e or no (inan%ia, reso)r%es to p,a%e into t#e proe%t' It may )ndermine some o( t#e

prod)%tivity potentia, o( CS i( an e


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avin& said t#is* CAMAC re%o&nises t#e need to #ave some %ommer%ia,-%on(identia,ity

eemption* ana,o&o)s to t#at app,i%a+,e in t#e %ontet o( %ontin)o)s dis%,os)re* to avoid

mandatin& dis%,os)res t#at %o),d ,ead to inte,,e%t)a, property t#e(t* premat)re epos)re to

market %ompetition* or %opy%at a%tivities +y ot#er entities'

As ear,ier indi%ated* CAMAC s)pports a pro#i+ition on iss)ers makin& o((ers in +,ind

poo,s/* $#i%# in%,)de arran&ements $#ere an iss)er does not #ave a $ritten +)siness p,an'

!revious CSE( offers b* t"e issuer

An iss)er s#o),d +e re


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Implications of an adverse material c"ane

"#e temp,ate $o),d ep,ain t#e opt-o)t option (or investors $#o a%%ept an o((er +e(ore

dis%,os)re o( any materia, adverse in(ormation %on%ernin& t#e o((er see Se%tion 4'11'

Onoin reportin obliations

"#e temp,ate s#o),d state t#at an eempt p)+,i% %ompany is entit,ed to p)+,is# its ann)a,

(inan%ia, report* t#e dire%tors/ report and t#e a)ditor/s report i( app,i%a+,e on,ine on,y*

$it# no need to noti(y s#are#o,ders e,e%troni%a,,y on ea%# o%%asion* and no option (or

s#are#o,ders to re%eive a #ard %opy see ()rt#er Se%tion !'!'4'

An eempt p)+,i% %ompany iss)er s#o),d insert detai,s o( t#e $e+site $#ere t#e reports

$i,, +e p)+,is#ed'

!.: Contro#s on advertising

)ss#e$ what controls sho#ld there e on advertising ' an iss#er6

!.:.1ther /urisdictions

USA

Iss)ers are pro#i+ited (rom t$o (orms o( advertisin& or promotion o( t#eir o((ers.

advertisin& t#e terms o( t#e o((er* e%ept (or providin& a noti%e t#at dire%ts investors to

t#e intermediary p,at(orm (or t#at in(ormation' "#e SC %ommented t#at t#is

,imitation.

is intended to dire%t investors to t#e intermediary/s p,at(orm and to make investmentde%isions $it# a%%ess to t#e dis%,os)res ne%essary (or t#em to make in(ormedinvestment de%isions'

%ompensatin& any promoter o( t#e se%)rities* )n,ess s)%# %ompensation is (),,y

dis%,osed in a%%ordan%e $it# SC :),es' "#e SC %ommented t#at.

A,t#o) t#e re


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An iss)er as $e,, as an intermediary and any ot#er person invo,ved $it# a CS o((er

may not advertise t#e o((er or so,i%it potentia, investors' o$ever an iss)er as $e,, as an

intermediary and any ot#er person invo,ved $it# a CS o((er may advise potentia,

investors t#at t#e iss)er is proposin& to make t#e o((er and re(er t#e potentia, investors to

t#e $e+site o( t#e intermediary t#ro) $#i%# t#e o((er is made' "#is advi%e may +eprovided in paper (ormat or t#ro) so%ia, media'

!.:.2 Su,missions

A n)m+er o( respondents s)pported t#e prin%ip,e o( iss)ers +ein& a+,e to advertise t#eir

o((ers in some manner ot#er t#an mere,y t#ro) t#e o((er on t#e intermediary $e+site' A

tota, +an on ot#er (orms o( advertisin&* it $as ar&)ed* %o),d ne&ate t#e p)rpose o( CS to

+rin& t#e o((er to t#e attention o( a +road ran&e o( potentia, investors'

it#in t#is %ontet* one approa%# $as t#at t#ere +e no restri%tions on advertisin& +y an

iss)er* ot#er t#an p)rs)ant to eistin& %ons)mer prote%tion provisions a&ainst (a,se and

mis,eadin& or de%eptive statements $#i%#* (or instan%e* %o),d app,y to (inan%ia, (ore%asts$#i%# are )nreasona+,e or )nrea,isti% and a pro#i+ition on an iss)er a%%eptin& e


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CAMAC sees t#e &enera, approa%# in s 7!4 o( t#e Corporations A%t as a possi+,e mode, in

t#e %ontet o( CS' "#at provision re&),ates advertisin& and p)+,i%ity o( %)rrent,y

permitted se%)rities o((ers* +e(ore and a(ter t#e dis%,os)re do%)ment is ,od&ed'

"#e FS and Canadian approa%#es* and t#e vie$s o( t#ose respondents in s)+missions $#o(avo)red %ontro,s on advertisin& +y iss)ers* a,so %onstit)te a ran&e o( )se(), s)&&estions

a+o)t t#e (orm* and p)rpose* o( s)%# %ontro,s in t#e spe%i(i% %ontet o( CS'

!.; versu,scription

)ss#e$ sho#ld iss#ers e permitted to raise more f#nds than referred to in the original

offer6

!.;.1ther /urisdictions

CanadaIt is proposed t#at an iss)er +e permitted to o((er more t#an t#e n)m+er o( se%)rities

initia,,y proposed to +e o((ered in its o((er do%)ment i( it #as dis%,osed t#e maim)m

n)m+er o( se%)rities t#at %o),d +e o((ered )nder CS and t#e )se o( t#e additiona,

pro%eeds t#at $o),d +e raised' o$ever* t#e O1' mi,,ion ,imit on t#e a&&re&ate amo)nt

t#at %an +e raised )nder CS +y t#e iss)er &ro)p in a spe%i(ied time period m)st +e

%omp,ied $it#'

A%%ordin& to t#e 5SC.

"#is approa%# $i,, a,,o$ an iss)er to raise additiona, ()nds to a,,o%ate to t#eadvan%ement o( its +)siness p,an i( t#ere is stron& investor interest in t#e o((erin&*

s)+e%t to t#e overa,, distri+)tion ,imit o( O1' mi,,ion'

USA

In t#e FS* t#e SC a,so (avo)rs an iss)er +ein& a+,e to a%%ept investments in e%ess o( any

tar&et amo)nt in an o((er do%)ment* s)+e%t to t#e O1 mi,,ion in 12 mont#s ,imitation and

%ertain %onditions.

e +e,ieve t#at permittin& overs)+s%riptions $o),d provide (,ei+i,ity to iss)ers sot#at t#ey %an raise t#e amo)nt o( %apita, t#ey deem ne%essary to (inan%e t#eir+)sinesses' or eamp,e* permittin& overs)+s%riptions $o),d a,,o$ an iss)er to raisemore ()nds* $#i,e ,o$erin& %omp,ian%e %osts* i( t#e iss)er dis%overs d)rin& t#eo((erin& pro%ess t#at t#ere is &reater investor interest in t#e o((erin& t#an initia,,y

anti%ipated or i( t#e %ost o( %apita, is ,o$er t#an initia,,y anti%ipated'

!.;.2CAMAC position

An iss)er s#o),d +e permitted to o((er to t#e %ro$d more t#an t#e n)m+er o( s#ares

previo)s,y re(erred to in its o((er do%)ment* provided t#at it dis%,oses t#e ad)sted

maim)m n)m+er o( s#ares on o((er )nder CS $it#in t#e O2 mi,,ion %ap and t#e )se

o( t#e additiona, pro%eeds t#at $o),d +e raised'

"#is $i,, &ive some (,ei+i,ity to iss)ers to raise ()nds in e%ess o( an initia, tar&et $#ere

t#ere is a stron&er t#an anti%ipated ,eve, o( %ro$d interest in t#e o((er'


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!.1


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!.11.2 CAMAC position

#ere* (o,,o$in& t#e p)+,i%ation o( an o((er to t#e %ro$d* an iss)er +e%omes a$are o( a

materia, adverse %#an&e/ %on%ernin& itse,(* t#e iss)er s#o),d +e re


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it is $orka+,e (or t#ose investors $#o t)rn t#eir mind to $#et#er to eer%ise t#e

e,e%tion to $it#dra$ (rom t#e s#are transa%tion

t#e opt-in po,i%y option %o),d see t#e %o,,apse o( a CS o((er +y de(a),t* t#ro) t#e

non-response* in%,)din& t#ro) apat#y* o( a s)((i%ient n)m+er o( %ro$d investors$#o #ave previo)s,y a%%epted t#e o((er

an opt-o)t approa%# in t#e %ontet o( CS $o),d %reate a %onsistent approa%# $it#

ot#er re&),ated (orms o( p)+,i% e


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An iss)er t#at distri+)tes se%)rities )nder a %omp,eted CS o((er m)st (i,e a report to t#e

re&),ator $it#in 10 days o( %omp,etion o( t#e distri+)tion'

!.12.2 Su,missions

"#ere $as a vie$ in s)+missions t#at $#et#er it is an a,, or not#in&/ or keep it a,,/ CS

%ampai&n* iss)ers s#o),d on,y &ain a%%ess to investor ()nds $#en.

t#e CS o((er period #as ended* and

any minim)m s)+s%riptiondesi&nated ()nds tar&et set +y t#e iss)er #as +een met* and

any ot#er pre%onditions in t#e o((er #ave +een satis(ied

any %oo,in& o(( period (or investors #as epired* and

,e&a,,y +indin& s#are o$ners#ip do%)mentation #as +een provided to investors'

!.12. CAMAC position

CAMAC a&rees $it# t#e approa%# in s)+missions as to $#at %onstit)tes %omp,etin& a

CS o((er' Fnti, t#e o((er is %omp,eted* t#ere s#o),d +e a +an on t#e trans(er o( any

%ro$d investor ()nds to t#e iss)er and t#e trans(er o( any s#ares to t#ose investors'

An o((er %annot pro%eed to %omp,etion )n,ess t#e s)+s%ription t#res#o,d* +ein& t#e

minim)m amo)nt o( ()nds to +e raised* as dis%,osed in t#e %ro$d()ndin& o((er do%)ment*

#as +een rea%#ed' o$ever* $#et#er t#at t#res#o,d #as +een a%#ieved may +e in(,)en%ed

+y.

any materia, adverse %#an&e d)rin& t#e o((er period and* i( so* t#e n)m+er o( investors$#o t#ere)pon $it#dra$ t#eir a%%eptan%es Se%tion 4'11'

t#e %oo,in&-o(( rits o( %ro$d investors Se%tion 6'6'

In %onse


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!.1*ees paid ,y issuers

)ss#e$ what controls sho#ld appl' to fees paid ' iss#ers6

!.1.1 ther /urisdictions

Canada

An iss)er $i,, +e pro#i+ited (rom* dire%t,y or indire%t,y* payin& a %ommission* (inder/s (ee*

re(erra, (ee or simi,ar payment to any person in %onne%tion $it# any CS o((er ot#er t#an

to t#e intermediary t#ro) $#i%# t#e o((ers are made' A%%ordin& to t#e 5SC* t#is

pro#i+ition does not app,y to payments +y iss)ers to persons as %ompensation (or t#eir

servi%es to an iss)er in preparin& materia,s in %onne%tion $it# a CS o((er* s)%# as

a%%o)ntin& or ,e&a, (ees'

In t#e vie$ o( t#e 5SC* t#ese (ee restri%tions $i,, miti&ate potentia, %on(,i%ts o( interest'

!.1.2 CAMAC position

CAMAC %onsiders t#at (ee restri%tions s#o),d app,y* to miti&ate %on(,i%ts o( interest*

in%,)din& #idden promotions or endorsements +y persons $#o* )nkno$n to t#e %ro$d* $i,,

+ene(it (rom t#e take-)p o( %ertain CS o((ers'

Consistent $it# t#e approa%# in Canada* an iss)er s#o),d +e pro#i+ited (rom* dire%t,y or

indire%t,y* payin& a %ommission* (inder/s (ee* re(erra, (ee or simi,ar payment to any person

in %onne%tion $it# any CS o((er* ot#er t#an (ees to t#e intermediary dire%t,y re(era+,e to

%ond)%tin& t#at o((er on its $e+site'

o$ever* t#is pro#i+ition s#o),d not app,y to payments +y an iss)er to persons as%ompensation (or t#eir servi%es to t#at iss)er in preparin& materia,s dire%t,y in %onne%tion

$it# a CS o((er* in%,)din& payment o( a%%o)ntin& or ,e&a, (ees in preparin& an o((er

dis%,os)re do%)ment'

CAMAC e,se$#ere dis%)sses t#e dis%,os)re o( (ees %#ar&ed +y intermediaries

Se%tion '2!'

!.1!'ia,i#ity

)ss#e$ in what circ#mstances sho#ld iss#ers and their controllers e liale for the

content of CS! offer doc#ments6 4hat defences sho#ld appl'6

!.1!.1 ther /urisdictions

New Zealand

An iss)er )sin& CS $i,, +e s)+e%t to ,ia+i,ity (or pe%)niary pena,ties (or any

misstatements or )ns)+stantiated representations it makes )n,ess it %an prove a de(en%e*

(or instan%e t#at t#e %ontravention $as d)e to a %a)se +eyond its %ontro, and it took

reasona+,e pre%a)tions and eer%ised d)e di,i&en%e to avoid t#e %ontravention'

USA

MisstatementsIss)ers* and %ontro, persons/ o( t#e %ompany* in%,)din& dire%tors and prin%ipa, o((i%ers*

$i,, +e s)+e%t to ,ia+i,ity (or any misstatements t#ey make' I( t#e iss)er.


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makes an )ntr)e statement o( a materia, (a%t or omits to state a materia, (a%t ne%essary

to make its statements* in ,it o( t#e %ir%)mstan%es in $#i%# t#ey $ere made* not

mis,eadin&* and

%annot s)stain t#e +)rden o( proo( t#at it did not kno$ and* in t#e eer%ise o(reasona+,e %are* %o),d not #ave kno$n* o( s)%# )ntr)t# or omission

it m)st reim+)rse t#e p)r%#ase pri%e o( se%)rities p,)s interest'

)nvestment "imits

"#ere are ,imits on t#e amo)nt o( ()nds t#at ea%# investor %an %ontri+)te ann)a,,y t#ro)

CS see Se%tion 6'4'

"#e SC #as proposed a,,o$in& an iss)er to re,y on e((orts t#at an intermediary takes to

determine t#at an investor does not e%eed t#e investor ,imits see Se%tion 6'4'2* provided

t#at t#e iss)er does not #ave kno$,ed&e t#at t#e investor #ad e%eeded* or $o),d e%eed*

t#e investor ,imits as a res),t o( a%%eptin& t#e o((er o( t#e iss)er'

/anning and safe harbour

"#e SC may +an persons (rom )ti,isin& CS to ()nd t#eir proe%ts on %ertain &ro)nds*

in%,)din& non-%omp,ian%e $it# re&),atory re


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-iabi"ity for misrepresentation

"#e 5SC %onsidered it important (or market %on(iden%e t#at investors #ave a %ontra%t)a,

rit to s)e (or misrepresentation' or t#is p)rpose* t#e iss)er m)st provide a %ontra%t)a,

rit o( a%tion (or res%ission or dama&es to ea%# investor and se%)rity #o,der in t#e event

o( a misrepresentation* s)+e%t to a d)e di,i&en%e de(en%e and a de(en%e t#at t#e investorkne$ o( t#e misrepresentation'

!.1!.2 Su,missions

Eario)s respondents %onsidered t#at t#e prin%ip,es in ss 728-7!! o( t#e Corporations A%t

dea,in& $it# ,ia+i,ity (or misstatements in* or omission (rom* a dis%,os)re do%)ment

s#o),d a,so app,y to dis%,os)res +y an iss)er in t#e %ontet o( CS'

o$ever* one respondent %onsidered t#at some ad)stments to t#e avai,a+,e de(en%es

)nder t#ose provisions $o),d +e needed* ar&)in& t#at t#e %osts o( (),, veri(i%ation*

re


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!.1%Communication ,etween crowd investors

)ss#e$ what if an' oligation sho#ld iss#ers have to provide a means for its crowd

and other investors to comm#nicate with each other6

!.1%.1 CAMAC position

CAMAC e,se$#ere proposes t#at intermediaries +e re


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% The crowdfunding process=

intermediaries

This chapter sets out the proposa"s for intermediaries to conduct equity offers to the crowd

through their websites!

%.1 verview

Intermediaries p,ay t#e %entra, ro,e in +rin&in& to&et#er iss)ers and %ro$d investors' o$

t#ey per(orm t#at ro,e is ()ndamenta, to t#e inte&rity o( t#e CS pro%ess'

It is proposed t#at ea%# e


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The crowdfunding process% intermediaries

%.1.2rohi,itions

It is proposed t#at intermediaries %annot.

p)+,is# o((ers o( ine,i&i+,e iss)ers Se%tion '7

en&a&e in %on(,i%t o( interest sit)ations Se%tion '12

provide investment advi%e to %ro$d investors Se%tion '17

so,i%it %ro$d investors to a%%ept CS o((ers on t#eir $e+sites Se%tion '18

,end to %ro$d investors to a%


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t#e idea or +)siness' A,,o$in& an iss)er to %ond)%t a sin&,e o((erin& or sim),taneo)so((erin&s in re,ian%e on L"it,e III o( t#e >5BS A%t t#ro) more t#an oneintermediary $o),d diminis# t#e a+i,ity o( t#e mem+ers o( t#e %ro$d to e((e%tive,ys#are in(ormation* +e%a)se essentia,,y* t#ere $o),d +e m),tip,e %ro$ds'/

A,so.

an on,ine-on,yT re


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p)+,is#ed +y t#e FS SC' "#is approa%#* it $as ar&)ed* s)pports transparen%y and a ,eve,

p,ayin& (ie,d +y ens)rin& t#at a,, %ro$d investors #ave a%%ess to t#e same in(ormation in a

sin&,e ,o%ation' "#e s#arin& o( kno$,ed&e and in(ormation amon& investors $i,, #e,p to

disseminate in(ormation t#at $i,, (orm t#e rep)tations o( iss)ers* intermediaries and ot#er

a%tors* $#i%# is %riti%a, &iven t#e division o( ,a+o)r in t#e market assessment pro%ess'

%.2.CAMAC position

CAMAC #as %onsidered $#et#er* in re,ation to ea%# CS o((er* t#at o((er %an +e

%ond)%ted on,y t#ro) one intermediary so,e-intermediary and t#at intermediary %an

make t#e o((er and pro%ess t#e a%%eptan%es on,y t#ro) its on,ine $e+site on,ine-on,y'

An iss)er %o),d approa%# any intermediary to %ond)%t a parti%),ar o((er'

"#e prin%ipa, ar&)ment (or t#ese re


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it provides a (a%i,ity +y means o( $#i%# o((ers o( s#ares in a %ompany are madeU and

t#e prin%ipa, p)rpose o( t#e (a%i,ity is to (a%i,itate t#e mat%#in& o( %ompanies $#o

$is# to raise ()nds $it# many investors $#o are seekin& to invest re,ative,y sma,,

amo)nts

"o +e ,i%ensed* an intermediary m)st.

#ave (air* order,y* and transparent systems and pro%ed)res (or providin& t#e servi%e'

satis(y %apa+i,ity standards'

In addition* t#e dire%tors and senior mana&ers o( t#e intermediary m)st +e (it and proper

persons to #o,d t#eir respe%tive positions' "#e MA #as ,aid do$n minim)m standards in

t#is re&ard'

A n)m+er o( ot#er ,i%ensin& re


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Canada

CS o((ers m)st +e %ond)%ted t#ro) an on,ine intermediary re&istered as a restri%ted

dea,er'

"#e 5SC des%ri+ed t#is ,i%ensin& re


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5ne approa%# in s)+missions $as t#at $#et#er ,i%ensin& or re&istration* or neit#er* $as

appropriate s#o),d t)rn on t#e ,eve, o( a%tive invo,vement in t#e CS pro%ess epe%ted

o( intermediaries' ?i%ensin& may not +e appropriate i( t#e on,y stat)tory ro,es o(

intermediaries are to provide an on,ine p,at(orm $#ere iss)ers may advertise t#eir o((ers

and to administer t#e o((er and a%%eptan%e pro%ess' In t#at %ase* a%%ordin& to somerespondents* re&istration may sti,, +e ne%essary to avoid (,y-+y-nit/ intermediaries $#o

(ai, to per(orm even t#ese ()n%tions' Converse,y* ,i%ensin& may +e appropriate i(

intermediaries are o+,i&ed to p,ay an a%tive ro,e in s%r)tinisin& iss)ers and ot#er$ise

sa(e&)ardin& t#e interests o( %ro$d investors and deterrin& (ra)d'

Some respondents %onsidered t#at intermediaries s#o),d* at most* on,y #ave to +e

re&istered $it# an ind)stry-+ased %ode o( %ond)%t i( t#ey are pro#i+ited (rom &ivin&

(inan%ia, advi%e to potentia, investors and are a,so pro#i+ited (rom #o,din& investors/

()nds or se%)rities' It $as a,so ar&)ed t#at any ()rt#er re&),ation t#ro) ,i%ensin& in t#ese

%ir%)mstan%es may +e too onero)s and %ost,y (or intermediaries* $#o $o),d ),timate,y

pass s)%# %osts on to t#e iss)er* t#)s de(eatin& t#e p)rpose o( CS as a ,o$ %ost option

(or sma,, +)siness'

Anot#er vie$ $as t#at intermediaries t#at provide an on,ine p,at(orm +et$een t#e iss)ers

and t#e investors s#o),d +e s)+e%t to an appropriate ,i%ensin& arran&ement to provide

some minim)m standard o( prote%tion to t#ose iss)ers and investors parti%ipatin& in t#e

marketp,a%e' "#e ro,e t#e operators p,ay in t#e intermediation o( investors and iss)ers

s#o),d determine $#at type o( ,i%en%e t#ey #ave and t#e re&),atory o+,i&ations t#e

operator s#o),d meet'

it#in t#is %ontet* t#e vie$ $as epressed t#at intermediaries s#o),d not +e re


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%ro$d investors in t#e impartia, ro,e o( intermediaries' A,so* t#e ,i%ensin& o( s)ita+,e

intermediaries $o),d not +e over,y onero)s* %ost,y or time-%ons)min&'

An intermediary t#at intends to %ond)%t a se%ondary market in s#ares iss)ed t#ro) t#e

CS pro%ess $o),d a,so need to +e appropriate,y ,i%ensed'

CAMAC notes t#at* dependin& )pon t#e interpretation o( key ,e&is,ative %on%epts*

in%,)din& $#at %onstit)tes operatin& a (inan%ia, market* a


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to ena+,e investors to ,o& in and vie$ t#eir investment* and

to &)ard a&ainst on,ine (ra)d* )na)t#orised a%%ess to investor detai,s* and money

,a)nderin&'

A,so* dependin& )pon t#eir ro

camac report: csef report 21may2014

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